Over the last decades, VAT has become a household name referring to HMRC’s taxation on sales. Particularly for those of us running a business, submitting quarterly returns online through Making Tax Digital initiatives like AbraTax, VAT has become a staple of modern life. However, VAT’s roots extend far beyond the fiscal landscape we see today. In this article, we explore the surprising origins of taxation in Britain.
Anglo-Saxons: Paying the Danegeld
Over a millennium ago, the Anglo-Saxons had already established forms of regular taxation. Perhaps the most renowned of these is the so-called Danegeld. Paid to the Viking settlers in Britain – the Danes – it was a way for locals to appease the invaders and avoid further violence.
Danegeld was first paid following the Viking victory at the Battle of Malden in 991 CE. By the early 11th century, these payments had developed into a system of annual land taxation – the money collected was used to fund mercenaries who defended the English realm.
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Robin Hood: Greedy sheriffs
Following the Norman invasion in 1066, the Danegeld tradition was continued and converted into a means to pay for waging wars abroad and supporting the lavish lifestyles of the upper class. Rates increased and the geld was collected ever more frequently – think of Robin Hood facing off the tax-greedy Sheriff of Nottingham.
Another local tax, paid to the lord or sheriff, was called scot. This term provides origin of the phrase scot-free – to get away with something without paying tax!
Tax on Trade… for a Crusade?
By the 12th century, land tax was rather unfair, often being based on arbitrary judgements about land productivity. Until this stage, forms of taxation were mostly relating to farmland and were often paid in kind – by giving a portion of your farmed produce. However, sales tax and tax of goods soon arose.
By 1188, the unfair Danegeld was completely replaced with a 10% tax on moveable property and income (essentially, on goods and revenue). Interestingly, there was a tax exemption for knights’ weapons, horses, and armour – the tax was used to fund King Henry II’s religious crusade in Jerusalem.
Who’d have thought it? Mediaeval sales tax – the ancestor of VAT – funded the Third Crusade!
Sense of Stability: Tudors and beyond
Fast forward to the Tudor period, and we encounter solidified forms of income and property taxation, better organised to fund essential government projects and military expenses both home and abroad. It was here that the foundations for more sophisticated taxation systems, like VAT, began to solidify.
The Catalyst: World War II
By the time World War II set in, the British government needed to sustain the war effort. Enter Purchase Tax, a tax levied on luxury items, which was the direct precursor to VAT. While not as universal as the VAT we know today, it was a critical tool during a tumultuous period, providing a much-needed economic boost and discouraging material waste.
Purchase Tax rates varied depending on the perceived “luxury” of goods. Originally set at 33.33%, it was increased up to 66% for cars. (Click here to read about modern VAT rates, which also vary.)
A Continental Affair: VAT arrives
In 1973, Britain joined the European Economic Community, which necessitated changes to its tax laws. At this stage, Purchase Tax bowed out and made way for the Value Added Tax – a more comprehensive system that aligned with European tax laws. So, here we have it: VAT!
VAT debuted in 1970s Britain with a standard rate of 10% – just like King Henry II’s tax, established all those years ago. Since the 1970s, VAT rates have fluctuated and, on the whole, increased. Today, we see a range of rates up to 20% (for most goods). Specific reductions and exemptions remain a source of perpetual discussion.
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Conclusion: VAT in context
From the days of Danegeld to today’s digitalised VAT, taxation in Britain has been an ever-evolving social contract. Through each tax introduced, each rate change, and each debate, we're not just looking at numbers and policies: we're witnessing the palpable, dynamic relationship between a nation and its people. Perhaps most remarkably, tax provides a snapshot in time, shaped by the prevailing economic, social, and political conditions of its day.
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